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What Is a Chapter 7 Bankruptcy Means Test?

The Chapter 7 means test is a formula that takes into account your income, expenses, family size, and the median income for your state to determine if you qualify for bankruptcy. If your expenses are significantly higher than your income, you may be eligible to file for Chapter 7. However, if the results of the test show that you have enough disposable income to pay off your debts, you may not qualify for Chapter 7 and might need to seek alternate debt relief options, such as Chapter 13 bankruptcy.

Listing Your Income

In the first part of the means test, you are required to list all forms of income for your household. To ensure you accurately account for your income, it is imperative that you collect all information about your earnings for the six months prior to your filing for bankruptcy.

Your household income will be compared to the median income for your state. If your income is below the median, you do not need to do anything further; you can proceed with the Chapter 7 bankruptcy process. However, if your income is above the median and you still want to try to file for Chapter 7, you must complete the second step of the means test.

Accounting for Your Expenses

In the second part of the means test, you must list your expenses for the past 6 months. As with the income section, you must gather all documents about your debt to ensure you are accurately reporting your information. If you leave out an expense, put the incorrect amount, or enter a figure twice, the totals in this step will be skewed and will affect your eligibility for Chapter 7.

Your total expenses will be deducted from your total income to determine your disposable income. If your debt exceeds your earnings, you may be able to file for Chapter 7. However, if you have enough disposable income, you are expected to use that to pay down your creditors, and you will be ineligible for Chapter 7.

Failing the Means Test

If you fail the means test (meaning your income is higher than the median or you have a high disposable income), you cannot appeal the decision. However, other debt relief options may be available.

Schedule a Free Consultation with Bowman, Smith & Kallen

If you are struggling to keep up with your debt and are considering filing for Chapter 7 bankruptcy, contact our lawyers for legal advice. We will assess your current financial situation to determine the best course of action.

To request your free consultation, call us at (928) 433-2355 or contact us online.